1. Business

Cost of nuclear plants raises doubts on Progress Energy's Levy County plan

Published Mar. 25, 2012

Building a nuclear plant is not the cheapest way to keep the lights on.

Not with such low natural gas prices. Not with fizzling political drive for carbon taxes. And not with soaring construction costs.

Don't believe it? Some of the main players in the nuclear industry are already in retreat.

"We can't make the numbers work," said the chief nuclear officer for Exelon, the country's largest operator of nuclear plants. Likewise, NRG Energy's CEO said "it's hard to see" a path toward more nuclear production.

Progress Energy still sees a way, even with the tab for its Levy County project hitting $22.4 billion, an eye-popping number in an industry known for eye-popping numbers.

The company maintains that nuclear is "the best … option," not necessarily the cheapest option. Its fuel price is low and stable. It produces near-zero carbon pollution. And it gushes gobs of electricity round-the-clock, unlike solar and wind.

A new nuclear plant also keeps Florida from relying too much on natural gas.

"As the saying goes, it is best not to have all your eggs in one basket," said Progress Energy spokeswoman Suzanne Grant.

But at what price? A burning question for Progress customers, who are already on the hook for $1.1 billion whether or not the nuclear plant gets built.

• • •

At $10 billion, building a two-reactor nuclear plant like Levy competes on price with the equivalent natural gas plant. At $15 billion, natural gas wins the price battle. At $22.4 billion, it's a rout.

That's the upshot of forecasts from the nonpartisan federal Energy Information Administration and the Electric Power Research Institute, a nonprofit research organization funded by the energy industry.

Even the decidedly pro-nuclear Nuclear Energy Institute is careful with how it describes which is cheaper.

"New nuclear plants can be competitive, even with total project costs exceeding" $13 billion for a two-reactor plant, the institute concluded in a report released in January. The report did not consider a $22.4 billion tab.

In comparing energy sources, the researchers look out over 30 years or more, and factor in estimates of future fuel prices, operating costs, financing and even the potential cost of curtailing carbon pollution.

Nuclear plants have always been expensive to build but comparatively cheap to operate. Natural gas plants can be up and running in a fraction of the time and for far less money, but are left to the vagaries of the fuel markets.

These days, when those researchers look into their crystal balls, many of them see nuclear's kryptonite: cheap natural gas.

Currently, natural gas prices hover below $2.50 per million British thermal units, having fallen steadily from above $4.50 a year ago. The federal government's latest prediction is natural gas will stay under $7 for almost 25 years. That's as far out as the government projects. Even some ardent nuclear advocates like Exelon say the price needs to climb north of $8 for nuclear construction to make financial sense.

As recently as 2009, long-term federal projections had natural gas exceeding $8. But since then, natural gas prices have plunged.

Credit for that goes to the success of hydraulic fracturing, or "fracking." The process uses chemicals, water and sand to drill through shale rock to release trapped gas. Huge shale reserves could provide enough natural gas to fuel America for nearly 100 years. So far, a backlash from environmentalists has done little to slow down fracking.

The United States will become a net exporter of liquefied natural gas in 2016 and an overall net exporter of natural gas in 2021, according to the Energy Information Administration.

The result: Nearly 260 new natural gas plants are expected to come on line in the United States in just four years.

The growth of natural gas and alternative energy like wind and solar will pick up the slack as the country moves away from its historic reliance on coal to produce electricity, the EIA concluded.

And nuclear? Soaring costs will mean fewer new plants get built, says the EIA.

Utility operators including Progress acknowledged early on that they did not have a handle on nuclear plant pricing because no one had received a license to build a new one in 30 years. The lack of industry experience contributed to Levy's costs soaring from about $5 billion to $17 billion and then $22.4 billion.

Another cost driver: construction delays.

It typically takes 18 to 24 months to build a natural gas plant. The nuclear timetable is long and not as reliable, as the Levy project illustrates.

Originally, Progress said the Levy plant would starting pumping out electricity in 2016. Now, Progress will only say that Levy's first reactor is expected to come on line "beyond the estimated 2021 time frame" and the second unit 18 months later.

Progress lost out on federal loan guarantees and tax credits dangled to get nuclear plants on line by 2021. Southern Co., in contrast, secured an $8.33 billion federal loan guarantee plus tax credits by committing to open its dual reactor plant in eastern Georgia in 2016.

Nuclear construction costs could go even higher if last year's disaster in Japan creates tougher safety and building standards.

"Construction costs are high enough that it becomes difficult to make an economic argument for nuclear, even before incorporating these external costs" like the risk of a nuclear accident, researcher Lucas Davis of the University of California at Berkeley wrote in a recent paper for Berkeley's Energy Institute.

Davis is a proponent of more nuclear construction. But without federal tax incentives, he doesn't see the numbers working for the Levy project.

"Maybe you guys should just wait," he suggested.

• • •

Progress Energy CEO William Johnson doesn't sound like someone ready to sit on the nuclear sideline.

"Fuel diversity still counts," Johnson said this year in defending his push for nuclear.

Natural gas already provides 50 percent to 60 percent of Florida's electricity, Johnson told reporters last month.

"Adding more gas to that system is problematic," he said.

Sure, "straight up on the economics" nuclear can't compete against natural gas today, Johnson said. But what happens if natural gas prices spike? They've been volatile before, he noted, going over $10 three or four times in the last decade.

In fact, Progress Energy's justification for the Levy plant is tied to its own prediction of rising natural gas prices. The utility told state regulators as recently as November that it sees the "mid-range" of natural gas prices hitting $10 by 2028 and $12 or $13 by 2035. That contrasts sharply with other forecasts, including the one from the federal government, that keep the average price below $7 as far out at 2035.

Forecasting future prices is necessary in the energy world, but it's also tricky. Four years ago, Progress Energy persuaded regulators to green light the nuclear plant based on a stack of premises that didn't hold up:

Progress' fossil fuel supplies, certainly for oil and increasingly for natural gas, are generally dependent on foreign suppliers. Today, the surge in domestic natural gas supplies has changed that equation.

Florida needs a burst of new electrical generation to meet growing demand. The Great Recession led to drastically scaled back estimates of how much electricity the state will need this decade.

Progress' nuclear plant at Crystal River will continue to serve customers well for years to come. That was March of 2008. A year later, Progress botched an upgrade and repair job on the plant, which has remained off line ever since.

The economic downturn even undermined the argument that a new nuclear plant would help buffer against a coming tide of carbon taxes. Politically, implementing penalties for carbon emissions remains on life support. And, if it is revived, the growing costs of building nuclear plants could undermine it again.

Using more nuclear power to cut emissions of greenhouse gas is like using "caviar to fight world hunger," former Nuclear Regulatory Commission member Peter Bradford has said repeatedly.

Given the decadelong process of building a nuclear plant, other carbon-favorable options like wind and solar would likely be closer to competitive on price.

"Wind and solar are dropping like a rock," said Mark Cooper, a longtime antinuclear analyst with Vermont Law School's Institute for Energy and the Environment. "All the fundamentals are moving in the wrong direction" for nuclear.

• • •

One "fundamental" remains favorable for Progress. It continues to profit from the troubled Levy project.

The state pioneered legislation that allows utilities to bill customers for some costs before a plant is built. Utilities can collect the fee for advanced natural gas plants, too, but there's less money to be made because they're cheaper to build.

In the Levy case, customers already have to pay $1.1 billion, whether the plant gets built or not. Of that, Progress will pocket about $150 million, as the Tampa Bay Times has previously reported. If the plant gets built, that $150 million grows to about $3.5 billion.

Progress declined to cite a financial threshold at which it would consider nuclear to be too expensive to pursue, downplaying project cost as "not the only factor" to consider in meeting Florida's future energy needs.

For now, the utility is focused on securing an operating license for the nuclear plant from the Nuclear Regulatory Commission. After that, it says it will "update its assessment of the project to ensure that it continues to be in the best interest of customers and shareholders."

Nuclear engineer and industry advocate Jerry Paul contends utilities will need nuclear power as part of the mix for decades to come, even though natural gas for now has become "competitive" because of cheaper prices.

Is there a point where the Levy project becomes too expensive to pursue?

"Not to be glib, but clearly with the purchase of any product, you have to determine the cost and determine if the juice is worth the squeeze," Paul said.

He would not speculate about a specific financial tipping point for Levy, saying the choice lies with each community.

"It depends on how much you value diversity (of power sources) and how much you value zero (carbon) emissions. … You have to put a price on that. Every community is going to look at that differently."

Cooper, from the antinuclear camp, says his nightmare scenario is Progress "pouring money down a sinkhole" with the Levy project until it eventually says it's too late to switch to an alternative.

The only other course of action, he says, is to back out: "The key question is, when do you admit defeat?"

Jeff Harrington can be reached at (727) 893-8242 or